The situation there is grim, and the financial and social systems there are buckling:
The worst nightmares of [...] Euroskeptics have been exceeded. The United States carried the luxury-goods industries of France and Italy and the engineered-products industries of Germany on its back for decades, but it will not and cannot do it anymore. Decline is reversible; more complicated is a death wish as thoroughly installed in the attitudes and practices of whole peoples as that of most of Europe.
If Europe cannot spark a demographic renewal, with a work force comprising fully half the people, flexible labor markets, tax rates that encourage savings and investment, an end to stealthily galloping inflation, and a reactivation of the economic and military muscle that alone confer credibility, it will quietly perish.
These are the results of cradle-to-grave statism, and Euro-socialist economic policies. There is no reason why this cannot happen here in the United States, in fact it probably already is happening. The laws of economics and common sense apply in our country as well as in Europe.
Moody’s Investors Service on Tuesday became the first rating agency to cut Portugal below investment grade, causing the 10-year Portuguese government bond yield to leap more than 1 percentage point to euro-era highs.
The agency cited worries that administrative problems and slow economic growth might prevent the Portuguese government from hitting ambitious targets to shrink its budget deficit over the next three years under a 78 billion euro international bailout.
But Moody’s also said efforts by the European Union to have private investors bear part of the burden of supporting Greece, through a “voluntary” rollover of maturing Greek debt, threatened investor confidence in Portugal as well.
If investors believe the EU may follow the Greek model and pressure them into bearing part of the cost of future aid to Portugal, they may become less willing to lend to Lisbon, reducing the chance that it can resume borrowing from markets in 2013 as planned, Moody’s said.
Saner heads in Europe are sounding the alarm:
Government bureaucrats in centralized Euro-capitals, picking winners and losers in a so-called free market never works.
Greek citizens are emptying savings accounts and buying gold as they brace themselves for the possibility of a sovereign default and a run on the banks.
Pledges by socialist prime minister George Papandreou that his government would “save the country” have been widely discounted by the public. However, parliament gave him a vote of confidence late on Tuesday night. The socialists have a six-seat majority in the 300-member house.
Sales of gold coins have soared as savers seek a safer and fungible source of value.
“When the global financial crisis started, our sales of coins to investors overtook bullion for the first time,” said Harry Krinakis, at Sepheriades, a Greek precious metals trader. “Now the sales ratio has reached five to one.”
Tomas, a computer technician, has exchanged his euro savings for gold coins: “I keep them at home just like my grandmother did in the second world war.”
Andreas, a supermarket manager, transferred the family savings to Munich earlier this year: “The Swiss banks aren’t interested unless you’ve got several hundred thousand euros.”
“We can’t trust the politicians to get us out of this mess [and] have to protect our families,” Sakis, a garage owner, said at an anti-austerity protest in Athens’ Syntagma square. “A bank collapse has got to be on the cards.” He added he had withdrawn his savings and placed them in a bank safe deposit box “for security. Who cares about interest right now?”
Somehow the Greeks are not so thrilled with their government’s insistence that everything will be peachy.
There seems to be a trend going on in European countries with nanny-state socialist tendencies recently:
Thousands of people last night filled Puerta del Sol, where demonstrators have used Twitter to attract supporters to a makeshift camp in the central Madrid plaza, mirroring the use of social media that fueled the recent protests in Tunisia andEgypt. They’ve plastered buildings with posters and slogans and are holding political discussions throughout the day.
Spain’s Socialist government, which faces regional and local elections on May 22, turned against its traditional base to push through the deepest budget cuts in at least three decades and overhaul labor and pension laws. The collapse of Spain’s debt-fueled property boom left the country with an unemployment rate of 21 percent, and 45 percent of young people out of work.
“The rich are getting richer and the poor are getting poorer,” Pepa Garcia, a 34 year-old unemployed actress, said in an interview yesterday at the Puerta del Sol. “People should be indignant; some banks are getting rescued with our money while we’re almost drowning.”
Spain’s bank-rescue fund has committed around 11 billion euros ($16 billion) to lenders suffering from the collapse of the real estate market. Savings banks need another 14 billion euros to meet new capital requirements, the Bank of Spain estimates. The government is pushing lenders to raise those funds from private investors, with the national rescue facility known as FROB acting as a backstop.
The Socialists are set to suffer a setback in most of the regional elections, polls show. The party will be beaten in the region of Castilla-La Mancha, which it has controlled for three decades, and may lose the city of Barcelona for the first time since Spain’s return to democracy in 1975, according to a poll by the state-run Center for Sociological Research on May 5.
[Spanish Prime Minister Jose Luis] Zapatero has angered traditional supporters by slashing public wages, freezing pensions and seeking to change wage- bargaining rules as part of his efforts to cut the euro-region’s third-largest budget deficit and shield the Spanish economy from the sovereign debt crisis.
There are lessons to be learned here in the United States, as more and more people become dependent on a government check for support. The government should always be considered temporary help to your situation, because as fast as the government gives, so can it take away.
All of this talk of liquidity in the markets and confidence between banks sounds vaguely familiar:
Dollar Libor rates gauging stress within the interbank lending market have jumped to a 10-month high of 0.5363pc, with credit contagion spreading to every area. The iTraxx Senior financials index – banks’ “fear gauge” – rose 20 basis points on Tuesday to 184. “It turns out we weren’t seeing the light at the end of the tunnel after all, but a train with a big light on it coming towards us of double-dip,” said Dr Suki Mann, at Societe Generale.
While the Libor rate is still far below peaks reached during the Lehman crisis, the pattern has ominous echoes of credit market strains before the two big “pulses” of the credit crisis in August 2007 and September 2008. In each case a breakdown of trust in the interbank market was a harbinger of violent moves in equities and the real economy weeks later.
RBS’s credit team said Libor strains were worse than they looked since most banks in Europe were paying much higher spreads, especially in Spain. The “implied” forward spreads were nearer 1.1pc.
To me, there seems to be a lot of complacency here in the United States. The subprime mortgage crisis came around less than two years ago and destroyed much of Wall Street in its path, and took back hundreds of billions of dollars in equity from everyday Americans. And nobody seems to worry about a second wave of failing banks and the tenuousness of our economy and financial markets.
When the dominoes start falling in Europe, only a fool will think that the American market will be immune to the mess. We’re a global marketplace now, and the idiocy of our central bank, the Treausry and our political leaders will not change that fact.
Hey, guess what? LIBERALISM. DOES. NOT. WORK.
Across Western Europe, the “lifestyle superpower,” the assumptions and gains of a lifetime are suddenly in doubt. The deficit crisis that threatens the euro has also undermined the sustainability of the European standard of social welfare, built by left-leaning governments since the end of World War II.
Europeans have boasted about their social model, with its generous vacations and early retirements, its national health care systems and extensive welfare benefits, contrasting it with the comparative harshness of American capitalism.
Europeans have benefited from low military spending, protected by NATO and the American nuclear umbrella. They have also translated higher taxes into a cradle-to-grave safety net. “The Europe that protects” is a slogan of the European Union.
But all over Europe governments with big budgets, falling tax revenues and aging populations are experiencing rising deficits, with more bad news ahead.
With low growth, low birthrates and longer life expectancies, Europe can no longer afford its comfortable lifestyle, at least not without a period of austerity and significant changes. The countries are trying to reassure investors by cutting salaries, raising legal retirement ages, increasing work hours and reducing health benefits and pensions.
In Rome, Aldo Cimaglia is 52 and teaches photography, and he is deeply pessimistic about his pension. “It’s going to go belly-up because no one will be around to fill the pension coffers,” he said. “It’s not just me; this country has no future.”
Changes have now become urgent. Europe’s population is aging quickly as birthrates decline. Unemployment has risen as traditional industries have shifted to Asia. And the region lacks competitiveness in world markets.
According to the European Commission, by 2050 the percentage of Europeans older than 65 will nearly double. In the 1950s there were seven workers for every retiree in advanced economies. By 2050, the ratio in the European Union will drop to 1.3 to 1.
In Athens, Mr. Iordanidis, the graduate who makes 800 euros a month in a bookstore, said he saw one possible upside. “It could be a chance to overhaul the whole rancid system,” he said, “and create a state that actually works.”
At the end of the day, two plus two always equals four, no matter which country you live in.
Europe is only beginning to realize the big steaming pile of crap it’s gotten itself into. Meanwhile, here in the United States our elected overlords would rather not get into the lifeboats, but are content to climb back onto the Titanic.
During the healthcare debate, the favorite mantra of the pro-reformers was that the United States was “the only Western nation” that didn’t “provide” healthcare to its citizens. This is emblematic of the entire progressive doctrine–that government not only can provide for the cradle-to-grave well-being of its citizens, but it’s imperative that it must do so. All of it of course, paid for by taxing the productive class and/or public debt.
This is a recipe for a Euro-style disaster.
Markets are down big all over the world and Wall Street opened sharply lower.
Worries about Europe’s sovereign debt crisis are the backdrop for all of this, precipitated earlier this week by Germany’s decision to place a ban on all naked short selling, in an attempt to stop the bleeding. The fools.
The market overlords are scratching their heads, wondering why their magic pixie dust isn’t working. If you want to attempt to understand why markets are crumbling, look at idiocy like this:
Asian stocks tumbled, with the Nikkei at a three-month low, amid worries there about the European debt crisis, market regulation and growth in China. Plus, riots in Thailand that saw 30 buildings torched including the stock exchange, a massive shopping mall and a TV station, added a layer of unease to the region.
“I’m convinced the markets are really out of control,” said German Finance Minister Wolfgang Schaeuble. ” That is why we need really effective regulation, in the sense of creating a properly functioning market mechanism.”
[...]The German government faces a stormy debate in parliament this week over its participation in the €750bn stabilisation plan for the eurozone and the move on a transaction tax could persuade the opposition Social Democrats to support it.
Berlin has promised to give credit guarantees up to €150bn as part of the stabilisation package, if weaker eurozone economies come under renewed pressure in the capital markets. The finance minister rejected domestic criticism of the rescue, saying it was essential to preserve the stability of the euro.
He expressed disappointment at the market reaction. “We would rather see the markets react a bit more positively,” he said. “But when the euro was launched, its exchange rate to the US dollar was lower. So we’re not getting too worked up about it.”
Got that? It’s the MARKETS that are the cause of the problem. Those silly markets, refusing to abide by the temporary bandaids bailouts and other lame measures that Europe’s central bankers have put in place to try and stop the sell-off.
Of course, they want to use the volatility to take more control, implement more regulation on the markets.
Such hubris and arrogance. The “markets” are not acting “out of control”. The markets are RE-acting to the ineptitude and ignorance of central bankers and European leaders! The out-of-control spending, the deficits, all of it unsustainable. The markets (investors) realize this and are acting accordingly. There’s a big difference.
Stocks reached levels they haven’t seen since…last week.
The markets saw some serious volatility towards the end of last week and that continued as the market surged today. But plugging the holes via a massive liquidity intervention is not exactly a sure thing:
Just hours after leaders agreed to provide nearly $1 trillion as part of a huge rescue package, central banks began buying euro zone government bonds directly on Monday — an unprecedented move to inject cash into the financial system.
In response, the euro has rallied against the dollar, markets surged and the risk premium on Greek and other government bonds plunged. But analysts pointed out that the package did little to reduce overall debt, and that the uncertainty that has plagued the markets could return if European nations did not take bold steps to reduce their borrowing.
“If the will for fiscal discipline in the E.U. is plainly evident, long-term confidence in the euro will be restored,” Michael Heise, chief economist of the German insurer Allianz, said in a note to investors.
The Euro seemed to hit bottom last week at $1.25, and surged to $1.31 early this morning on the bailout news. But that didn’t last long as the Euro was last trading at $1.277 vs the US dollar.
So much for confidence in the Euro.
Greece is in trouble.
The IMF has approved a bailout, but that requires some tough love for the nation’s bloated public payroll:
…[I]t was left to Giorgos Papaconstantinou, the Greek finance minister, to outline the details of the unprecedented rescue package for a eurozone member.
Painting an even starker picture of the nation’s public finances, the politician predicted that with its economy also contracting, Greece’s public debt would hit nearly 150% of GDP before it even began to drop in 2014. At 120%, Athens has the highest public debt to GDP ratio on the continent. “The choice is between collapse or salvation,” he said.
Under the deal, agreed after 10 days of intense negotiations with the IMF and EU, VAT will also rise by two percentage points from 21%. Duties on fuel, cigarettes, alcohol and luxury goods will similarly increase by 10%.
The Greek government has vowed to rush emergency legislation through parliament by next Friday, which will enable it to enact the reforms.
The austerity measures required by the IMF to advance the loan require a lot of fiscal discipline, something that should have been in place all along. But, as a lot of the economies of the EU are finding out, you can’t keep siphoning the public till forever.
The Greek government is learning these lessons the hard way:
[The] protesters set fire to a building and a witness saw firemen evacuate at least four people. “There are probably people trapped in the building,” fire officials said in a statement before the news emerged that people trapped in the building had died. The police blamed what were called “hooded youths” for setting fire to the building.
The Greek fire brigade reported that three people died in the building, a branch of the Marfin Bank on the route of a protest march into the city center, according to The Associated Press. It had apparently been attacked with gasoline bombs.
The demonstrations were the first major protests since the Socialist government of Prime Minister George Papandreou unveiled belt-tightening changes on Sunday that amount to the biggest overhaul of the state in a generation.
As the 24-hour strike began, German Chancellor Angela Merkel told legislators that the 110-billion euro plan to bail out Greece was “about nothing less than the future of Europe and the future of Germany in Europe.”
There is really no difference between what is happening in Europe and what will eventually happen here in the United States if fiscal house remains in disarray. Already California, one of the world’s biggest economies, has been having the same issues–balancing the ever-growing requests for spending vs. treasury receipts.
Here in New Jersey, Governor Christie is doing a yeoman’s job at trying to stem the tide of red ink.
Unfortunately, the Federal government takes the opposite approach and refuses to learn the lessons of what’s unfolding in Europe. The Obama administration and a partisan Congress are encouraging massive growth in spending, and onerous taxes to pay for it all.
Of course it’s not just Greece, nor even just Europe. Pick a nation, pick a state, pick a city — Los Angeles, say. The game is up. The grand Ponzi schemes of modern public financing have reached the point where Mr. Ponzi packs his bags and heads for Paraguay.
The reckoning is coming. We’re so screwed.